A Reflection
Scrutiny and Roads Not Taken Lead to Right Path

By John J. Kearney

Because this is my final column as president of the New York State Society of CPAs, you might think this one would be the easiest to write. At least I thought it would be, but in fact, I’m discovering quite the opposite is true. As much as I would like to, there are simply too many people to thank, too many meetings to recount, too many important actions taken, and far too many miles logged traveling the state, to put them all down on this page. So, in the spirit of any good roundup, I’ll stick to what I believe were some of the major highlights of the past year.

It’s been said a prudent question is one half of wisdom. I generally agree with this statement and feel its application is especially appropriate to this organization and the accounting profession. For the last several years now, the Society and the profession have been engaged in an intense period of self-examination, asking the tough questions and making even tougher decisions. Critical self-analysis is a vital component to progress, and because of our hard work we are better serving our membership, our clients and the public that places its trust in us, and we are on the verge of witnessing other truly meaningful reform.

Largely since the first major financial reporting scandals began to surface, the NYSSCPA has taken the difficult but necessary position that ethics must be more transparent. As you may recall, during Jeff Hoops’ presidency, we became the first CPA society to pass a membership bylaw that permits the organization to make closed ethics cases available to state regulators. This was the right course of action then and it remains even more so today. This past year, we continued to take the lead on this issue, serving—as we have in the past—as the state’s principal advocate for mandatory peer review for firms performing attest and compilation services, and strongly encouraging the American Institute of CPAs to both strengthen the peer review system and increase its transparency by making reports more widely available.

As I wrote in my column last July, greater transparency is essential to the continued growth of public confidence in the profession and is a significant incentive to firms with quality problems to adequately address their deficiencies. Additionally, because of new reporting requirements and considerable emphasis on accountability, the peer review process has taken on increased significance to regulators, clients and credit grantors, among others, all of whom expect greater transparency.

Of course, any steps taken to improve the profession must also be accompanied by long-overdue reform to the state laws that govern it, which is an area where the Society again played a hugely influential role. Last June, the state Senate, for the second year in a row, voted unanimously in favor of Society-supported S302-D, which would have expanded the scope of practice and included tax preparation and tax advisory services as qualifying experience for licensure. It also would have mandated peer review, required the registration of all CPA firms, allowed acceptance of commissions and referral fees from nonattest clients, and called for all CPAs, even those in industry, government and not-for-profits, to meet CPE requirements.

Soon after, though, the Assembly pushed a vastly differing accounting reform bill, A11695. Fortunately, a swift and decisive grassroots lobbying campaign by our membership helped stymie the bill before it even ever garnered a vote. We should all be proud of this accomplishment.

Since then, accounting reform legislation has sat idle in Albany, but the Society has remained very active on the issue. We took advantage of different occasions and hearings with lawmakers to promote the provisions in S302-D, and NYSSCPA Executive Director Lou Grumet, myself and several other board members participated in numerous editorial meetings with the state’s media. I believe our state legislators and the public have begun to firmly grasp the importance of updating New York’s accounting statute, and the chances of getting meaningful reform passed have never looked brighter. I am especially pleased to note that Sen. Kenneth LaValle last month introduced legislation, S4642, which is very similar to S302-D, with an additional provision for substantial equivalency. (See the story on page 1 for more information.)

Our legislative work also concerned State Comptroller Alan Hevesi’s five-point plan to strengthen internal controls in school districts. This proposed legislation, which the Society helped draft and has testified on behalf of, is in direct response to the series of financial scandals and alleged outside-audit failures in the Long Island school system. Among its provisions, the plan would require more external audit involvement and financial oversight training for school board members; establish an internal audit function and audit committee for each school district; and establish a competitive process for audit firm selection. The Society has publicly stated that it would help train firms that may lack the required school expertise.

As one of the largest groups of CPAs in the country, the Society also recognized the need and value for it to become involved in matters that extend beyond New York state. In recent months, NYSSCPA members, including Laurence Keiser and David A. Lifson, have helped to explain to the public and policy makers the key issues surrounding Social Security reform, as well alternative solutions to the problems facing the nation’s retirement system. Through presentations to financial journalists, the Society is shedding light on Social Security’s origins, its likely fate, and an analysis of lesser-known reform proposals circulating in Washington.

Of course overhauling Social Security is just one of the two main domestic priorities that President Bush has said will guide his second-term agenda. The other, an issue that we are all too familiar with, involves the simplification of the federal tax code. Given our collective knowledge and expertise, it was only appropriate then that we examine alternatives to the current tax system, which could help provide Congress with a framework to approach this difficult issue. In January, the Society established a special task force, chaired by Lifson, called the Committee on Practical Reform for the Tax System. After holding several discussions and seeking comments and insight from a number of tax experts, the task force developed a white paper that offers a comprehensive and clear solution to the complexity and confusion inherent in the tax system. Late last month, the Society sent this paper to the President’s Advisory Panel on Federal Tax Reform.

On the home front, we’ve taken steps to ensure that the Society remains a model of good governance, continues to function as an influential source of assistance and acumen on financial matters significant to the public and the business community, and is meeting the needs of all its members.

Last July the board of trustees for the Foundation for Accounting Education passed bylaw changes that will become effective in June. In keeping with an enhanced strategic plan and governance changes that began taking shape under past President Jo Ann Golden, these new bylaws will allow the FAE trustees to elect their own officers. As part of the arrangement, the Society’s Board of Directors will supply the FAE trustees with a list of candidates who will fill vacancies on their board. Through this structure, the entire NYSSCPA membership can help shape the composition of the FAE Board of Trustees. In the past, bylaws, not ballots, determined the composition of FAE officers; we believe this is a much more democratic process.

Another major NYSSCPA initiative concerns the recent launch of our CPAs on Boards program. This initiative matches our CPA members with nonprofit groups that are proactive in raising the level of financial integrity of their boards. As qualified professionals with in-depth knowledge of taxation, compensation and the latest federal regulations, this program is an ideal situation for us to give back to the community, while building our practice and reputation and facilitating more networking opportunities.

Finally, I want to tell you about another development at the Society that we feel is going to have a beneficial impact on a particular segment of our membership. While the NYSSCPA strives to provide all members with a high level of service, it is always looking for ways to make membership more meaningful and valuable. This past year we scrutinized our different member categories and concluded that the Society needs to bolster its offerings to those members in industry. The Society recognizes that many of these members have different needs and concerns than those who are in public practice; therefore, it currently is creating an extensive education program that will specifically target the industry members’ professional responsibilities and areas of expertise and interest.

I cannot conclude this column without thanking my wife, Martha, for all her support, both at home and at the office. Clearly, I could not have done this without her. Additionally, I would like to thank Stephen Lepselter and the rest of the people at the office for their help. One of the great things about being NYSSCPA president is having the opportunity to work and interact with all the people at the Society. I personally want to thank everyone there for their hard work and for the help provided to me during these last two years.

Finally, I wish President-Elect Stephen F. Langowski all the best for the upcoming year. I know the Society is in great hands and under his guidance will continue to be a leader in our profession.